The US Senate yesterday passed the Webcaster Settlement Act of 2009, following House passage 10 days ago. Once the Act receives the signature of President Obama, the law will go into effect, and give webcasting groups and the recording industry 30 days to reach a settlement (or settlements) on Internet radio music royalties for the
In recent months, SESAC has been writing letters to broadcasters who are streaming their signals on the Internet, asking for royalties for the performance of SESAC music on their websites. More than one broadcaster has asked me why they have any obligation to SESAC when they are already paying SoundExchange for the music that they stream. In fact, SoundExchange and SESAC are paid for different rights, and thus the payments to SoundExchange have no impact on the obligations that are owed to SESAC. SESAC, along with ASCAP and BMI, represent the composers of music in collecting royalties for the public performance of their compositions. SoundExchange, on the other hand, represents the performers of the music (and the copyright holders in those performances – usually the record companies). In the online digital world, the SoundExchange fees cover the public performance of these recordings by particular performers (referred to as "sound recordings"). For an Internet radio company, or the online stream of a terrestrial radio station, payments must be made for both the composition and the sound recording.
To illustrate the difference between the two rights, let’s look at an example. On a CD released a few years ago, singer Madeleine Peyroux did a cover version of the Bob Dylan song "You’re Gonna Make Me Lonesome When You Go." For that song, the public performance of the composition (i.e. Dylan’s words and music) is licensed through SESAC. The actual "sound recording" of Peyroux’s version of the song would be licensed through SoundExchange, with the royalties being split between Peyroux and her record label (with backing singers and musicians receiving a small share of the SoundExchange royalty).
We recently wrote about the agreements between SoundExchange and various groups of webcasters, which became effective under the terms of the Webcasters Settlement Act. These rates act as a substitute for the rates set by the 2007 Copyright Royalty Board decision setting Internet radio royalties for the use of sound recordings in the period from 2006-2010. The deal with broadcasters set lower rates than the CRB for 2009 and 2010, and also waived certain requirements otherwise applicable to webcasters, limiting the number of songs from the same artist that can be played in a given period of time (see our posts here and here). There is also a deal that SoundExchange unilaterally advanced to certain small webcasters which allows for a percentage of revenue royalty, but limits the amount of listening to these webcasters allowed at these rates, and imposes significant recapture fees if a webcaster sells its service to another company that would not qualify as a small webcaster (see our post here). April 30 is an important date under both deals, as it is the date by which small webcasters must elect the deal, and the date by which all broadcasters who elected the broadcaster deal earlier this month are to pay any back royalties which they owe for streaming from 2006 through the date of the agreement.
In talking to Internet radio operators, both broadcasters and small webcasters, many seem to be unaware of the records that need to be maintained to remain in compliance with the requirements of the deals. Both the small webcasters agreement and the NAB-SoundExchange settlement require "full census" reporting of all songs played by the service, which will include information for every song – including the name of the song that was played, the featured artist who performed the song, the album on which the song appeared, and the label on which the album was released. In addition, the webcaster must report on the number of times each song was played, and how many people heard each transmission of the song. Only very small broadcasters and "microcasters" under the small commercial webcaster deal, are totally exempt from these requirements. Under their deal, broadcasters need not provide all the information for up to 20% of their programming, but this percentage of the broadcast week that can avoid full reporting will shrink every year (see our post here for details).
Continue Reading Internet Radio Royalty Reminders – April 30 is the Last Date to Elect Small Webcaster Agreement and for Broadcasters to Pay Past Fees, and Don’t Forget the Recordkeeping Obligations
In January, the Copyright Royalty Board asked for comments as to whether it should require "census reporting" of all sound recordings that are used by a digital service subject to the statutory royalty. This would replace the current requirement that services need only report on the sound recordings used for two weeks every calender quarter. Most of the comments that were filed dealt with the difficulties of certain classes of webcasters – particularly small webcasters and certain broadcasters – in keeping full census reports of every song that is played by a service, and how many people heard each song. In a Notice of Inquiry published in the Federal Register today, the CRB asked for further information about the cost and difficulties of such reporting. Comments on the Notice are due on May 26, 2009, and replies on June 8.
The real issues, as identified by the CRB, were raised by smaller entities that argued that they do not have the ability to track performances. Especially problematic are stations that have on-air announcers who pick the music that they want to play in real time, and don’t run their programming through any sort of automation system or music scheduling software. Live DJs playing music that they want is a hallmark of college radio, but one that creates problems for tracking performances. How can a DJ’s on-the-fly selection of music be converted to the nice, neat computer spreadsheets required by SoundExchange for the Reports of Use of music played?
The week, Congressman Rick Boucher, a member of both the House of Representatives Commerce and Judiciary Committees, told an audience of broadcasters at the NAB Leadership Conference that they should accept that there will be a performance royalty for sound recordings used in their over-the-air programming and negotiate with the record companies about the amount of a such a royalty. He suggested that broadcasters negotiate a deal on over-the-air royalties, and get a discount on Internet radio royalties. Sound recordings are the recordings by a particular recording artist of a particular song. These royalties would be in addition to the payments to the composers of the music that are already made by broadcasters through the royalties collected by ASCAP, BMI and SESAC. Congressman Boucher heads the Commerce Committee subcommittee in charge of broadcast regulation, and he has been sympathetic to the concerns of Internet radio operators who have complained about the high royalty rates for the use of sound recordings. Having the Congressman acknowledge that broadcasters needed to cut a deal demonstrated how seriously this issue is really being considered on Capitol Hill.
The NAB was quick to respond, issuing a press release, highlighting Congressional opposition to the Performance royalty (or performance tax as the NAB calls it) that has been shown by support for the Local Radio Freedom Act – an anti-performance royalty resolution that currently has over 150 Congressional supporters. The press release also highlights the promotional benefits of radio airplay for musicians, citing many musicians who have thanked radio for launching and promoting their careers. The controversy was also discussed in an article on Bloomberg.com. In the article, the central issue of the whole controversy was highlighted. If adopted, how much would the royalty be? I was quoted on how the royalty could be very high for the industry (as we’ve written here, using past precedent, the royalty could exceed 20% of revenue for large music-intensive stations). An RIAA spokesman responded by saying that broadcasters were being alarmists, and the royalty would be "reasonable." But would it?
As we have written, by April 2, broadcasters who are streaming need to file with SoundExchange a written election in order to take advantage of the SoundExchange-NAB settlement. For broadcasters who make the election, the settlement agreement will set Internet radio royalty rates through 2015. One aspect of this agreement that has not received much attention is the waiver from the major record labels of certain aspects of the performance complement that dictates how webcasters can use music and remain within the limits of the statutory license. When Section 114 of the Copyright Act, the section that created the performance royalty in sound recordings, was first written in the 1990s, there were limits placed on the number of songs from the same CD that could be played in a row, or within a three hour period, as well as limits on the pre-announcing of when songs were played. These limits were placed seemingly to make it more difficult for listeners to copy songs, or for Internet radio stations to become a substitute for music sales. In conjunction with the NAB-SoundExchange settlement, certain aspects of these rules were waived by the 4 major record labels and by A2IM, the association representing most of the major independent labels. These waivers which, for antitrust reasons, were entered into with each label independently, have not been published in the Federal Register or elsewhere. But I have had the opportunity to review these agreements and, as broadcasters will get the benefit of the agreements, I can provide some information about the provisions of those agreements.
First, it is important to note that each of the 5 agreements is slightly different. In particular, one has slightly more restrictive terms on a few issues. To prevent having to review each song that a station is playing to determine which label it is on, and which restrictions apply, it seems to me that a station has to live up to the most restrictive of the terms. In particular, the agreements generally provide for a waiver of the requirement that stations have in text, on their website, the name of the song, album and artist of a song that is being streamed, so that the listener can easily identify the song. While most of the labels have agreed to waive that requirement for broadcasters – one label has agreed to waive only the requirement that the album name be identified in text – thus still requiring that the song and artist name be provided. To me, no station is going to go to the trouble of providing that information for only the songs of one label – so effectively this sets the floor for identifying all songs played by the station and streamed on the Internet.
In the last 5 days, the US Court of Appeals in Washington, DC has held two oral arguments on appeals from decisions of the Copyright Royalty Board – one from the Board’s decision on Internet Radio Royalties and the other on the royalties applicable to satellite radio. The decisions were different in that, in the Internet Radio decision, the appellants (including the group known as the "Small Commercial Webcasters" that I represented in the case) challenged the Board’s decision, arguing that the rates that were arrived at were too high. In contrast, at the second argument, SoundExchange was the appellant, arguing that the Board’s decision set royalties for satellite radio that were too low. But, in both arguments, an overriding question was whether the Judges on the CRB were constitutionally appointed and thus whether any decisions of the Board had any validity. While the question was expected and specifically raised in the webcasting proceeding (see our post here when that issue was first raised), the discussion at the satellite radio argument was somewhat of a surprise, as the issue had not been raised by either party, and the Appeals Court judges were not even the same judges who had heard the Internet radio argument. Yet one of the Judges raised the issue, unprompted by any party, by asking if the Copyright Royalty Judges were properly appointed and indirectly asking if their decision would have any validity if the constitutional issue was found to exist.
Will the Court decide the constitutionality issue, and what would it mean? No one knows for sure. One of the issues raised by the Court in the Internet radio case was whether the issue had been raised in a timely fashion. In both cases, the possibility of requiring additional briefing on the issue was also raised by the Court, though no such briefing has been ordered – yet. Even if the Court was to find that the Board was not properly appointed, there are questions as to whether the existing decisions should nevertheless be allowed to stand, while blocking new decisions until a new appointment scheme is found. Alternatively, Congress might have to intervene to resolve the whole issue and, if it was to do that, would Congress simply ratify the current decision, or would there be new considerations that would affect any Congressional resolution? The issue raises many questions, and we’ll just have to wait to see what the resolution will be.
We reported on the settlement under the Webcaster Settlement Act between the NAB and SoundExchange on Internet Radio Royalties. As provided in the Webcaster Settlement Act, that settlement has now been published in the Federal Register, and thus it is available for broadcasters who are streaming their signal on the Internet, or who are streaming other programming on the Internet, to claim coverage under that settlement. To do so, broadcasters who are already streaming must file a notice of Intent to Rely on this settlement, available here, with SoundExchange, by April 2, 2009 – thirty days after the Federal Register publication occurred. Broadcasters who are not now streaming, but who start in the future, must file the election notice within 30 days of the start of their streaming, or they will be bound by the rates established by the Copyright Royalty Board in their 2007 decision (see our post here). The publication sets out several other details of the settlement, set forth below.
The rates: The rates, which represent some savings under the CRB rate for the years between 2007 and 2011, are set forth below. These rates are "per performance", meaning that the rate is paid on a per song, per listener basis. If you play 10 songs in an hour, and each song is heard by 10 people, you have 100 performances. There are companies that provide services to track and report on performances. See our post, here, for details. There are also limited exceptions to the full "per performance" reporting, summarized below. The rates under this agreement are as follows:
2006 ……………………………….. $0.0008
2007 ……………………………….. 0.0011
2008 ……………………………….. 0.0014
2009 ……………………………….. 0.0015
2010 ……………………………….. 0.0016
2011 ……………………………….. 0.0017
2012 ……………………………….. 0.0020
2013 ……………………………….. 0.0022
2014 ……………………………….. 0.0023
2015 ……………………………….. 0.0025
In the last two weeks, we have seen Capitol Hill rallies by the Free Radio Alliance, opposing what they term the “performance tax” on radio, and yesterday by the Music First Coalition, trying to persuade Congress to adopt a performance royalty on the use of sound recordings for the over-the-air signal of broadcast stations. We’ve written about the theories as to why a performance royalty on sound recordings should or should not be paid by broadcasters, but one question that now seems to be gaining more significance is the most practical of all questions – if a performance royalty is adopted, how would broadcasters pay for it?
The recording industry and some Congressional supporters have argued in the past that, if the royalty was adopted, stations could simply raise their advertising rates to get the money to pay for the royalty. While we’ve always questioned that assumption (as, if broadcasters could get more money for their advertising spots, why wouldn’t they be doing so now simply to maximize revenues?), that question is even harder to answer in today’s radio environment. With the current recession, radio is reporting sales declines of as much as 20% from the prior year. Layoffs are hitting stations in almost every market. In this environment, it is difficult to imagine how any significant royalty could be paid by broadcasters without eating into their fundamental ability to serve the public – and perhaps to threaten the very existence of many music-intensive stations. And the structure of the royalty, as proposed in the pending legislation, makes the question of affordability even harder to address.
While all the details are not out yet, the trade press has been filled with announcements this evening reporting that SoundExchange and the National Association of Broadcasters have reached a deal on Internet Radio Royalties. This deal will apparently settle the royalty dispute between broadcasters and SoundExchange for royalties covering 2006-2010 which arose from the 2007 Copyright Royalty Board decision, as well as the upcoming proceeding for the royalties for 2011-2015. According to the press reports, the royalties are slightly reduced from those decided by the CRB for the remainder of the current period, and continue to rise for the period 2011-2015 until they reach $.0025 per performance in 2015. According to the press release issued by the parties, there was also an agreement between the NAB and the four major labels that would waive the limits on the use of music by broadcasters that are imposed by the Digital Millennium Copyright Act.
These limits, referred to as the performance complement, set out requirements on how many songs from the same artist or same CD can be played within given time periods which, if not observed, can disqualify a webcast from qualifying for the statutory license. If a webcaster cannot rely on the statutory license, it would have to negotiate with each copyright holder for the rights to use the music that it plays. The performance complement imposed requirements including:
- No preannouncing when a song will play
- No more than 3 songs in a row by the same artist
- Not more than 4 songs by same artist in a 3 hour period
- No more than 2 songs from same CD in a row
- Identify song, artist and CD title in writing on the website as the song is being played
It will be interesting to see the details of this agreement setting out what aspects of these rules are being waived.